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Q.2

(a) Exemption from attachment Rule 128 of the Income Tax Rules, 2002 (Any Ten)

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The following articles / income streams of the taxpayer shall not be liable to attachment and
sale in the event of recovery of tax arrears under the provisions of Rule 128 of the Income
Tax Ordinance, 2002:
1- Houses and other buildings (with the materials and the sites thereof and the land
immediately attached thereto and necessary for their enjoyment) belonging to an
agriculturist and occupied by him;
2- Books of account;
3- A mere right to sue for damages;
4- Any right of personal service;
5- Stipends and gratuities allowed to a pensioner of the Government, or payable out of
any service family pension fund notified in official Gazette by the Federal Government
or the Provincial Government in this behalf, and political pensions;
6- The wages of laboures and domestic servants, whether payable in money or in kind;
7- Salary to the extent of the first hundred rupees and one half of the remainder except
the salary specified in the Proviso to this clause;
8- The pay and allowances of persons to whom the Pakistan Army Act, 1952 applies, or of
persons other than Commissioned Officers to whom the Pakistan Navy Ordinance 1961
applies;
9- All compulsory deposits and other sums in or derived from fund to which the Provident
Funds Act, 1925 applies;
10- Any allowance forming part of the emoluments of any servant of Government or of any
servant of a railway or local authority which the appropriate Government may, by
notification in the official Gazette, declare to be exempt from attachment, and any
subsistence grant or allowance made to any such servant while under suspension.
11- The necessary wearing apparel, cooking vessels, beds and bedding of the defaulter,
his wife and children, and such personal ornaments, as, in accordance with religious
usage, cannot be parted with by any women;
12- Tools of artisans, and, where the defaulter is an agriculturist, his specified cattle and
seed grain as may, in the opinion of the Commissioner, be necessary to enable him to
earn his livelihood;
13- Any expectancy of succession by survivorship or other merely contingent or possible
right or interest; and
14- A right to future maintenance.

(b) Foreign Losses:


(i). Yes, where a resident person sustains a foreign loss (i.e., loss from a foreign source
income), he may set it off against his income under the same head of income.
(ii). If the foreign loss is not fully set-off then the loss shall be carried forward maximum
upto six (6) tax years immediately succeeding the tax year during which the loss
occurred.
(iii). Where a taxpayer has a foreign loss carried forward for more than one tax year, the
loss for the earliest year shall be set off first.

DISCLAIMER: The suggested answers provided on and made available through the Institutes website may only be referred, relied upon or treated as a guide and substitute
for professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the
suggested answers. Therefore, the Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.

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Q. 3 (a) Documents for which extension of time may be applied for:

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A person may apply in writing to the Commissioner for an extension in time to furnish the
following documents as prescribed under the relevant provisions of the Income Tax
Ordinance, 2001:
1- A return of income as required to be filed every year under Section 114;
2- Return of income to be furnished on discontinuance of the business under Section 117;
3- Employers certificate to be filed by a salaried taxpayer instead of return of income
under Section 115;
4- A statement filed by a person who derives his income from only such sources that are
taxable as a separate block or under presumptive taxation under Section 115(4) or
5- A wealth statement under Section 116.
Grounds considered by the Commissioner for allowing extension in time:
The Commissioner may extend the filing due date up to fifteen (15) days. However, under
exceptional circumstances a longer period may also be granted.
The extension may be granted on application in writing to the Commissioner and if he is
satisfied that the applicant is unable to furnish the return of income, employers certificate or
statement by the due date because of:
1) Absence from Pakistan
2) Sickness or other misadventure; or
3) Any other reasonable cause.
(b) Entitlement of a resident person to claim tax credit on investment in shares and
insurance under Section 62 of the Income Tax Ordinance, 2001:
A resident person other a company shall be entitled to a tax credit for a tax year either:
(i) In respect of the cost of acquiring in the year new shares offered to the public by a
public company listed on a stock exchange in Pakistan, provided the resident person is
the original allottee of the shares or the shares are acquired from the Privatization
Commission of Pakistan; or
(ii) In respect of any life insurance paid on a policy to a life insurance company registered
by the Securities and Exchange Commission of Pakistan under the Insurance
Ordinance, 2000, provided the resident person is deriving income charge to tax under
the head salary or income from business.
Computation of tax credit:
The amount of persons tax credit allowed under Section 62 of Income Tax Ordinance, 2001
for a tax year shall be computed according to following formula:
Tax credit = (A / B) x C
Where:
A: is the amount of tax assessed to the person for the tax year before allowance of any tax
credit under Part X of Chapter III of Income Tax Ordinance, 2001
B: is the persons taxable income for the year and
C: is the lesser of :(a) The total cost of acquiring the shares, or the total contribution or premium paid by
the person referred to in sub-section (1) in the year;
(b) 20% of the persons taxable income for the year; or
DISCLAIMER: The suggested answers provided on and made available through the Institutes website may only be referred, relied upon or treated as a guide and substitute
for professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the
suggested answers. Therefore, the Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.

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(c) One million rupees.


However, the amount of tax payable by the person for the tax year shall be increased by the
amount of tax credit allowed where a person has been allowed a tax credit in a tax year in
respect of the purchase of shares and such person has made a disposal of the shares
within 24 months of the date of acquisition.

Q.4

Net Taxable Income:


Name of Taxpayer
National Tax Number
Tax Year Ended on
Tax Year
Personal Status
Residential Status

:
:
:
:
:
:

M/s. Wilson Pharma Limited (WPL)


XXX
30th June, 2013
2013
Private Company
Resident

Computation of Taxable Income and Tax Liability:

Net Profits as per profit and loss account


Add: Inadmissible transactions:
Donation to unrecognized institution
Un-vouched and unverifiable vehicle expenses
Provision for taxes
Provision for bad debts
Liquidated damages [N-1]
Finance charges [N-4]
Preliminary expense[N-6]
Accounting depreciation

Rs. 000
80,926
502
1,881
10,080
4,480
Nil
350
1008
44,800

Less: Dividend [N-3]


672
Lease rentals [N-4]
1,750
Amortization of Preliminary expense(Rs.1008 @ 20%)[N-6]
202
Statutory depreciation
32,650
Taxable Income

1
1
1
1
1

63,101
144,027

1
1
1
1
1
1

35,274
108,753

1
1

38,064

(30)
38,034

1
1

Computation of Tax:
Total tax liability (108,753 x 35%)
Less tax deducted at source on:
Interest on bank deposit (300,000x10%) [N-5]
Tax payable for the year

DISCLAIMER: The suggested answers provided on and made available through the Institutes website may only be referred, relied upon or treated as a guide and substitute
for professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the
suggested answers. Therefore, the Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.

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Working Notes:
N-1 Liquidated damages mean the amount of damages to be recovered by either party for a
breach of the agreement by the other party. These are admissible. Only such fine,
penalty, etc., is inadmissible which is payable for violation of any law, rule or regulation.

0.5

N-2 Bad debts are presumed to have been allowed as deduction by the CIR.

0.5

N-3 A company is liable to pay tax on its dividend income as a separate block of income. As
tax at source is deducted by the company paying the dividend, nothing will be payable by
the receiving person.

0.5

N-4 Lease financial charges are treated as inadmissible and the total payment made by the
lessee toward the lease rentals is allowed as deduction against the incomes.

0.5

N-5 Interest on bank deposits:


For the presentation purpose, it may be deducted from the business income and include
under the head "Income from other sources". Tax deducted by bank u/s 151 @ 10% shall
be adjustable against final tax liability, if the tax payer is a company.

0.5

N-6 Preliminary expenses are amortized @ 20% of the total expenditure, instead of charging
the whole amount to profit and loss account.

0.5

Q. 5 (a) Under the Income Tax Ordinance, 2001, the Board as well as the Commissioner are vested
with powers to grant permission for use of special tax year instead of normal tax year. The
procedure laid down for applying and grant of approval is as follows as prescribed under
Section 74 of the Income Tax Ordinance, 2001:

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Approval by Federal Board of Revenue:


The Board may permit to use special tax year different from normal tax year and vice versa
in case of a class of persons through notification published in official Gazette.
Approval by the Commissioner:
1- In order to change the normal tax year, the taxpayer has to apply in writing to the
Commissioner for his permission.
2- The change in tax year is allowed by the Commissioner by an order only if the tax
payer has shown a compelling need for change in tax year subject to fulfillment of such
conditions, if any, as the Commissioner may impose. Such order shall be passed after
providing to the applicant an opportunity of being heard.
3- Where the application is rejected, the Commissioner shall record in the order, the
reasons for rejection.
4- The Commissioner may by an order withdraw the permission granted for change in tax
year after providing the applicant an opportunity of being heard.
5- Any person who is dissatisfied with the order of the Commissioner may file a review
application to the Board, whose decision on the application for change in tax year shall
be final.
(b) Foreign source salary of resident individuals:
A foreign-source salary income of a resident individual will be exempt from tax if he has paid
foreign income tax in respect of such income. Payment of foreign tax means that the
employer has deducted the tax at source and deposited the same to the revenue authority
of the country in which employment was exercised.

DISCLAIMER: The suggested answers provided on and made available through the Institutes website may only be referred, relied upon or treated as a guide and substitute
for professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the
suggested answers. Therefore, the Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.

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Q. 6 (a)

1- Under bonded warehouse facility, the importer is benefited by deferring the incidence of
duty and taxes payable on import of goods till the time the goods are actually removed/
cleared from the bonded warehouse. This allows the importer to avoid lock-up of capital
until he wants the goods for home market.

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2- In case of temporary imports of goods under bonded warehouse i.e. where the
imported goods are meant to be exported directly from the bonded warehouse, the
importer benefits from the zero-rating facility for levies of customs duty and sales tax,
which saves him from the hassles of applying for sales tax refunds and duty drawback
claims.
3- The importer also avoids to suffer incidence of duty and taxes on the wastages incurred
during storage / removal of goods from the bonded warehouse.

(b) (i)

ABC COMPANY
SALES TAX LIABILITY
FOR THE MONTH OF MAY 2013

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Rupees

Output Sales Tax

640,000

[Rs.4,000,000 x 16%]
Less: Input Sales Tax
Sales tax at standard rate

480,000

[Rs.3,000,000 (N-1) x 16%]


Value addition sales tax [Rs.3,000,000 (N-1) x 3%]

90,000
570,000

Sales Tax Payable

70,000

N-1:
Import value

Rs.2,400,000

Rate of customs duty

25%

Amount of customs duty

Rs.600,000

Import value for sales tax

3,000,000

(ii) Requirement of Registration Rule-4 of Sales Tax Rules, 2006:


The following persons engaged in making of taxable supplies in Pakistan (including
zero-rated supplies) in the course of furtherance of any taxable activity carried on by
them, if not already registered, are required to be registered for sales tax purpose:
1- A manufacturer not being a cottage industry
2- A retailer whose value of supplies, in any period during the last twelve months
exceed five million rupees;
3- An importer
4- A wholesaler (including dealer) and distributor;
5- A person required, under any other Federal law or Provincial law, to be registered for
the purpose of any duty or tax collected or paid as if it were a levy of sales tax to be
collected under the Act; and
6- A commercial exporter, who intends to obtain sales tax refund against his zero-rated
supplies.
THE END
DISCLAIMER: The suggested answers provided on and made available through the Institutes website may only be referred, relied upon or treated as a guide and substitute
for professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the
suggested answers. Therefore, the Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.

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